By Ishita SenguptaIndia’s Union Finance Minister Nirmala Sitharaman presented the Budget 2026-27 on 1 February 2026, the ninth of her tenure, terming it as a unique Yuva Shakti-driven Budget. Rather than announcing sweeping tax reductions, the Budget reinforced continuity from last year and focused more on administrative simplification, extending selective relief against the backdrop of substantial tax changes in recent years. There is substantial thrust on promoting ease of compliance for the ordinary taxpayer. This article highlights below some of these proposals.
No Change to Core Slabs and DeductionsThe Hon’ble FM has chosen to retain stability in income tax slabs and rates. The structure applicable for FY 2025–26 continues unchanged in FY 2026-27, under which salaried individuals effectively pay no tax on income up to approximately INR 12 lakhs after considering standard deduction of INR 75,000 and applicable rebates. New Income Tax Act, 2025In line with expectations, the new Income Tax Act 2025, which supersedes the long-standing Act of 1961, will now be effective from 1 April 2026. The new Act was drafted with a valiant attempt at simplification of provisions by reducing jargon and using layman language instead for easier comprehension. The related Income Tax Rules and Forms are expected to be notified shortly, to provide taxpayers sufficient time to familiarize themselves with the new requirements. It would be critical to have these, including the electronic versions, tested and released at the earliest so that tax filing truly becomes a smooth experience for taxpayers.Staggered timelines for filing tax returnsTax return deadlines have been extended to 31 August in case of non-audit business cases. Other categories of individual taxpayers filing ITR1 and ITR2 will continue to follow the deadline of 31 July. The extended deadline will give some breathing space to such taxpayers to finalise their books of accounts and gather details of business income. Extended timeline for Revised tax returnsAnother helpful reform in this year’s Budget permits taxpayers to submit revised income tax returns up to the next 31 March, extending the previous deadline of 31 December. With a nominal fee of INR 1000/ 5000 (depending on income of below/ above INR 5 lakhs), this extension provides taxpayers with greater flexibility and reduces the time pressure for correcting errors. This will be particularly useful for globally mobile taxpayers who have income and reporting requirements of foreign income and assets arising in tax jurisdictions outside India whose tax years are calendar years. It will also allow them to avail tax treaty relief in cases of double taxation. Updated Tax ReturnTo encourage voluntary compliance and reduce litigation, taxpayers will now be permitted to file Updated returns even after reassessment proceedings have begun, subject to payment of an additional 10% tax over and above the prescribed additional tax. Furthermore, updated returns can be filed even where there is a reduction in claimed losses.Foreign Assets Time Bound Disclosure Scheme for Small TaxpayersOver the past few years, after the introduction of the Black Money law, reporting of Foreign Assets and Income had become a stressful exercise for many people who did not have organised data at their disposal. Consequently, there have been multiple instances of taxpayers missing disclosure requirements. To give some relief to such taxpayers, a six-month tax amnesty scheme has been introduced to facilitate reporting of undisclosed foreign assets/income by certain categories of taxpayers like students, young professionals, tech employees, relocated NRIs, etc. In cases where the taxpayer has acquired such foreign asset from identified sources of income earned in India or abroad, reporting can be done upon a fee payment of INR 1 lakh if the maximum value (FMV) of assets covered is INR 5 crores. In cases where the taxpayer is unable to substantiate the source of funds for acquiring such asset(s), the amnesty scheme permits disclosure of assets, and any income arising therefrom, of a maximum aggregate value of INR 1 crore. The value of the asset would be at FMV and the tax payable will be 60% of such FMV/value. No further penalty is leviable. Simplified TDS and TCS ProcessesBudget 2026 has rationalised various Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions, making them less burdensome:
- TCS on foreign tour packages has been reduced to 2%.
- TCS on remittances for education and medical treatment abroad under the Liberalised Remittance Scheme (LRS) has been brought down to 2% from existing 5%.
- For property sales by Non-Residents (NRIs), the Budget allows the resident buyer to deduct and remit TDS using a PAN-based challan rather than requiring a TAN, simplifying the sale transaction process.
These changes make funds more accessible for genuine personal needs instead of getting locked up for refund claims later. Lower Withholding Certificate – Form 15G/HIn case of taxpayers holding securities in multiple companies, depositories will now be able to accept Form 15G/15H from the investor and provide it directly to various relevant companies. This will eliminate the hassle of tracking multiple investments and missing submissions by taxpayers.Rationalisation of prosecution provisionsThe Budget proposes a major overhaul of criminal prosecution provisions under the Act with the aim to minimise unnecessary litigation while maintaining a careful balance for deterrence in some serious offences. In a very welcome move, assessment and penalty proceedings are proposed to be merged into a single order. In addition, it is proposed to remove interest liability on penalties during the pendency of initial appeal proceedings and also lower deposit requirements for tax demands under appeal from the existing 20% to 10%. Exemption for certain Non-Residents rendering services in India under a Notified SchemeIn order to facilitate Indian businesses in specific sectors to avail of services of foreign experts with specialised skills, compliance has been made easier for such non-resident individuals. It is proposed to exempt income earned outside India (which is not deemed to accrue or arise in India) for a period of 5 consecutive tax years beginning with the first year of services. To be eligible for this relaxation, the individual should be non-resident in India for the last 5 years preceding the start of such services in India.The applicable Schemes are yet to be notified by the Government, but clearly this amendment will be welcomed by industries which need specialised experts to come and work in India. Measures like these will also make India an attractive destination for foreign experts to come and work in India.ConclusionThis Budget was more about consolidation of tax reforms and progress along the path laid out last year. With hardly any big bang changes, it has focused on procedural reforms and simplification under the New Income-tax Act, 2025. There were a few missed chances for greater simplification, e.g. in the area of capital gains, or TDS on rent payments to non-resident landlords, etc. We also hope that the related rules forms are released at the earliest to ensure taxpayers get adequate time to absorb and adopt these changes right from the start of the new tax year. (Ishita Sengupta is India Leader and Partner, Vialto Partners. Supported by Riddhi Shah (Senior Manager, Vialto Partners) and Mugdha Kandalgaonkar (Manager, Vialto Partners). Views are personal)
